Fulton Financial Corp (FULT) 2009 Q2 法說會逐字稿

Good day, everyone, and welcome to the Fulton Financial second-quarter 2009 earnings results conference call. This call is being recorded.

At this time, I would like to turn the conference over to Vice President of Corporate Communications Manager, Ms. Laura Wakeley. Please go ahead.

Good morning, and thank you for joining us for Fulton Financial Corporation's conference call and webcast to discuss our earnings for the second quarter of 2009. Your host for today's conference call is Scott Smith, Chairman and Chief Executive Officer of Fulton Financial. Joining him are Phil Wenger, President and Chief Operating Officer, and Charlie Nugent, Senior Executive Vice President and Chief Financial Officer.

Our comments today will refer to the financial information included with our earnings announcement, which we released yesterday at 4:30. These documents can be found on our website at fult.com by clicking on Investor Information and then on News.

Please remember that during this webcast, representatives of Fulton Financial may make certain forward-looking statements regarding future results or future financial performance of our Company. Such forward-looking statements reflect the Corporation's current views and expectations, based largely on information currently available to its management and on its current expectations, assumptions, plans, estimates, judgments and projections about its business and its industry, and they involve inherent risks, contingencies, uncertainties and other factors.

Although the Corporation believes that these forward-looking statements are based on reasonable estimates and assumptions, the Corporation is unable to provide any assurance that its expectations will in fact occur or that its estimates or assumptions will be correct, and actual results could differ materially from those expressed or implied by such forward-looking statements and such statements are not guarantees of future performance.

The Corporation undertakes no obligation to update or revise any forward-looking statements. Accordingly, investors and others are cautioned not to place undue reliance on such forward-looking statements. Many factors could affect future financial results, including, without limitation, acquisition and growth strategies; market risk; changes or adverse developments in economic, political or regulatory conditions; a continuation or worsening of the current disruption in credit and other markets, including the lack of or reduced access to and the abnormal functioning of markets for mortgage and other asset-backed securities and for commercial paper and other short-term borrowing; the effect of competition in interest rates on net interest margin and net interest income; investment strategy and income growth; investment securities gains; declines in the value of securities, which may result in changes to earnings; changes in rates of deposit and loan growth; asset quality and the impact on assets from adverse changes in the economy and in credit and other markets, and resulting effects on credit risk and asset values; balances of risk-sensitive assets to risk-sensitive liabilities; salaries and employee benefits and other expenses; amortization of intangible assets; goodwill impairment; capital and liquidity strategies; and other financial and business matters for future periods.

Fulton Financial does not undertake any obligation to update any forward-looking statements to reflect circumstances or events that occur after the date on which such statements were made.

Now I would like to turn the call over to your host, Scott Smith.

Good morning. Thank you, Laura, and thanks everyone for joining us here this morning. We have a few prepared remarks we would like to share before responding to your questions. My comments will focus on the areas of growth and capital. Then I will turn the call over to Phil Wenger to discuss credit, after which Charlie Nugent will cover our second-quarter financial performance.

We reported diluted net income per share of $0.05 for the second quarter, equaling the $0.05 we reported last quarter. While we are not pleased with our current performance, we continue to prudently build reserves. Our goal is to be ahead of the curve when the credit cycle turns toward more positive results. I would like to highlight some of the positives that we saw in the second quarter.

First, we saw very strong deposit growth, a combined result of aggressive promotional activities, increased focus on deposits from our commercial relationship managers, as well as an overall increase in the flow of deposits to the industry. Consequently, we were able to reduce our reliance on [wholesale] funding. Deposits are a much better fit to our relationship banking strategy and provide a more stable and consistently cost-effective funding base over the long term.

We were also pleased with the change in our deposit mix this quarter, with core demand and savings balances increasing at a greater rate than time deposits, which will help reduce our funding cost.

In addition, a significant amount of our certificates of deposit will be maturing over the next six months. Assuming most of these funds remain with us because of our commitment to building customer relationships and to increase personal contact with single-service CD customers, they will reprice well below current rates. Our experience to date in retaining these CDs has been encouraging. The reduction in rate, along with our reduced reliance on brokered CDs, should help our net interest margin.

While we do not make any public our household growth numbers for competitive reasons, monthly internal tracking shows we are growing core households. Despite the soft economy, we are seeing organic growth. We realize, however, that some of our strong time deposit growth is a result of customers not being comfortable with the equity market.

We strongly believe that our business model of local community banks in local markets creates value, particularly in light of the customer promise that we've made -- to care, listen and understand and deliver. Our new "Listening is Just the Beginning" brand introduction launched at the end of 2008 is now positioned consistently throughout our five-state footprint. We are seeing more market share opportunities as potential customers absorb our branding message.

We also know, however, that we must choose these new business opportunities very carefully, adhering to our conservative underwriting standards.

As you saw in the release, our net interest margin dropped slightly. However, net interest income improved. We would like to be lending more right now since loans are -- yields are attractive relative to investments. However, we are at the same time experiencing the age-old industry problem of being relatively deposit-rich when customers have little interest in borrowing. In fact, many businesses have postponed expansion plans or canceled them outright. When business loan pipeline improves and consumers decide to more actively borrow, we are positioned well to meet those needs from a funding standpoint.

Another bright spot was our residential mortgage activity. We had meaningful sale gains in the second quarter, particularly when compared to last year. The business is still strong, although rising rates tempered with new application activity somewhat -- with new activity somewhat -- tempered new application activity somewhat in the last few weeks.

A more important indicator is the rising number of purchase mortgages relative to refinancing over the last few months. To give you some idea of how the mix has changed, for the first six months of the year, refinancing comprised 80% of our activity, with purchase comprising the other 20%. Current pipeline, however, shows a 62% refinance and 38% purchase ratio. And if we look solely at our activity in June, refinancing requests fell to 43% and purchase money increased to 57%. People are buying homes again. Bargain prices, low rates and buyer incentives are all helping to stimulate some activity in the housing market.

Mortgage sale gains, although down from prior quarters, still contributed meaningfully to our non-interest income. But that is only part of the story. We saw growth in a number of non-interest-income-producing business lines. Deposit-related fee income remained strong, as did debit and credit card fees. You will recall that even though we sold our credit card portfolio last year, we continue to receive income on a residual basis.

Expenses remain very well-controlled as a result of a corporate-wide commitment to reduce spending wherever possible. Here again, expenses would have been down even more if we had not had the FDIC special assessment this quarter and the auction rate security charges in the first quarter.

I will conclude my comments and my prepared remarks with a few thoughts on capital. Our capital ratio has remained strong, with or without the capital purchase money. We are constantly evaluating our capital position and the role of capital; purchase money is a key focus of our discussions.

As we all know, the best way to grow capital is by retaining earnings generated from profitable organic growth. Historically, Fulton and its people have been able to do that quite effectively, and we fully expect to do it again. Thank you for your attention, and now I will turn the call over to Phil, and he will review our loan quality.

Thanks, Scott. There is no question that credit quality has been and continues to be a significant challenge. However, we believe we are managing it effectively in what continues to be an extremely difficult economic environment. We are focused on staying ahead of potential early warning signals within each sector and on individual credits.

Let me share a few key developments that we saw in the second quarter. Overall loan balances dropped on an ending linked-quarter basis by $140 million. There are two key reasons for this decline. First, we are in an economic environment that produces low loan demand. Secondly, reducing our construction loan portfolio has been and continues to be a management priority.

Construction loans dropped $143 million or 11.8% on a linked-quarter basis and $260 million or 19.6% year-over-year. There is very little new development, and existing development [is experienced] some increased absorption, especially in the under $300,000 price tier. Our commercial loan and commercial mortgage portfolios were up only slightly during the quarter, as our lenders continue to report weak demand.

We continued to increase the allowance for credit losses by recording a $50 million loan loss provision. While I don't mean to downplay the size of that number, it was at the level we anticipated and remained stable relative to the first quarter. As a result, our allowance at the end of the quarter stood at 1.86% of outstanding loans, up from 1.67% at the end of the first quarter. Our allowance coverage of nonperforming loans increased from 81% to 83% linked-quarter.

Total nonperforming loans increased by $21 million linked-quarter. This increase is $29 million less than the increase we saw between December 31 of '08 and March 31 of '09. The numbers show that we experienced a notable slowing in the rate of credit deterioration during the second quarter.

Annualized charge-offs to loans fell by three basis points. Before continuing our discussion on charge-offs, nonperforming loans and delinquency rates, I thought it might be helpful to update the geographic distribution of our loans throughout our footprint. As of June 30, approximately 54% of our loans are domiciled in Pennsylvania; 21% in New Jersey; 13% in Maryland; 9% in Virginia; and 3% in Delaware.

Of the $29 million in net charge-offs this quarter, approximately $10 million came from our New Jersey banks; $8.5 million from our Maryland banks; $6.5 million from our Pennsylvania banks; and $4 million from Fulton Bank's Virginia division; and $500,000 from our Delaware bank.

By loan category, we charged off $11 million from the construction portfolio, $6 million from the commercial portfolio and $6 million from the commercial mortgage portfolio. We also had six loans charged off this quarter in excess of $1 million, two residential developments, one in Delaware and one in Maryland; two loans in Pennsylvania, one a healthcare-related credit and one a golf course; and two loans in New Jersey, one an income-producing commercial property and one a commercial mortgage development.

As of June 30, total nonperforming assets were $292 million, $267 million of that number in nonperforming loans and $25 million of ORE. Approximately $88 million, or 30%, are in Fulton Bank's Virginia division. $77 million, or 26%, are in our New Jersey banks. $67 million, or 23%, are in our Pennsylvania banks. $54 million, or 18%, are in our Maryland banks. And $6 million, or 2%, are in our Delaware bank.

I now want to give you a snapshot of total delinquency trends linked-quarter. Our total delinquencies stood at 3.22% on June 30, up from 3% on March 31. 30-day delinquency increased from 59 basis points to 72 basis points. 60-day delinquency dropped from 38 basis points to 30 basis points. And 90-day increased from 204 basis points to 220 basis points.

Commercial loan delinquencies saw a slight decrease. All other categories showed increases, with the largest increase coming in the construction loan area. Delinquencies increased there from 8.78% to 10.36%. However, as would be expected, the majority of the percentage increase was due to shrinkage of the portfolio.

Commercial mortgage delinquency remains under 2%. Within this portfolio, while we do have performance risk, we do not have a great deal of refinancing risk.

Our consumer portfolio continues to hold up very well in this environment, with a total delinquency rate of 1.36% on our direct loans. Within our open-end home equity outstandings, 43% are first-lien positions. Current average credit score across the same portfolio is a very strong 744, and our current overall loan-to-value ratio is a conservative 56%.

While we saw an uptick in residential mortgage delinquency this quarter from 6.88% to 7.36%, losses from that portfolio have been relatively small compared to overall loan outstandings.

We continue to watch both the automotive-related and agricultural sectors of our portfolio for signs of weaknesses. We have very few credit issues within the automotive area. Our agricultural delinquency is a modest 76 basis points on a portfolio of $550 million.

Anecdotal information from lenders throughout our footprint indicates that new loan pipeline, while showing some activities, is still soft. In addition, housing inventories appear to be decreasing somewhat in most markets. In Northern Virginia, data shows residential housing inventories have fallen below the six-month level.

With that said, however, it does not appear that any of our markets are seeing signs of a meaningful economic rebound, although there is a general sense that we may be at or nearing the bottom of the cycle.

Another concern is how other components of our portfolio will perform outside of the construction category. Again, while signs of economic recovery are appearing on the horizon, it is going to take time for us to continue to work through the credit issues brought on by this economic downturn. We are looking forward to showing some incremental improvement soon, but that obviously depends on the economy.

At this time, Charlie will cover the details of our second-quarter financial performance. I will be happy to respond to your more specific credit-related questions in our question-and-answer session. Charlie?

Thank you, Phil, and good morning, everyone. Thank you for joining us today. Unless otherwise noted, comparisons are of this quarter's results to the first quarter. As Scott mentioned, we reported net income available to common shareholders of $8.1 million, or $0.05 per share, in the second quarter, which was the same as we reported in the first quarter. Our second-quarter earnings were negatively impacted by the $7.7 million FDIC special assessment.

We are pleased to see a number of positive items impacting our earnings, including a 3% increase in net interest income, a 3% increase in other income and a decrease in core operating expenses. The $3.8 million 3% improvement in net interest income was a result of an increase in earning assets, offset by a slight decline in the net interest margin. Total average earning assets grew $376 million, or 2.5%.

As Phil discussed, average loans were down $81 million, or 0.7%, while average investments increased $417 million, or 15%. The increase in average investments is primarily a result of our strong deposit growth. In addition, over the first part of the year, we invested the capital purchase program funds we received at the end of last year. We also repurchased the remaining $100 million of auction rate securities that were held in customer accounts.

On the funding side, total deposits grew $662 million, or 6%, with growth in all categories. We are pleased to report that most of our deposit growth was in core demand and savings accounts, which grew $470 million, or 8.6%.

Non-interest-bearing demand deposits increased $155 million, or 9%, with almost 80% of that increase occurring in business accounts. Interest-bearing demand grew $65 million, or 4%, with personal balances making up over 80% of that growth. In the savings category, we saw $249 million, or 12% growth. [58%] of this growth was in personal accounts; $138 million in state and municipal accounts; and $50 million in business accounts.

The growth in business accounts was impacted by businesses having to keep more balances on hand to offset service charges, as well as a movement out of cash (technical difficulty) management products due to the current low rates. The municipal accounts reflecting these same factors, along with the seasonal impact related to the tax collection process.

The net interest margin declined two basis points this quarter. This slight decline was due primarily to a shift in asset composition. Yields on earning assets decreased 12 basis points, while the cost of interest-bearing liabilities decreased only 10 basis points.

Through the remainder of this year, we have the opportunity to reprice a significant amount of time deposits and Federal Home Loan Bank advances, which should have a positive effect on the net interest margin. Over the next six months, $3.1 billion of time deposits mature at a weighted average rate of 2.61%, while $210 million of Federal Homeland Bank advances mature at a weighted average rate of 4.31%.

Excluding security gains, our other income improved $1.3 million, or 3%, to $45.3 million. Most of this increase was in the other service charge and fees category, and includes very strong growth from our merchant business and debit card fees, as well as increases in letter of credit fees and foreign exchange revenues.

Service charges on deposits [and cash] were up slightly, with growth and overdraft income offset by a decline in cash management fees. We normally see an increase in overdraft fees between the first and second quarters. As noted before, we've had customers go off cash management due to the available rates not offsetting the cost of being in the program.

Total gains on the sale of mortgage loans remained strong at $7.4 million in the second quarter compared to $8.6 million for the first quarter. Total loans sold increased to $650 million from $550 million, with refinances comprising 80% of origination volume.

The spread on sales decreased from 157 basis points to 114 basis points due to the greater volatility in rates that existed in the second quarter, particularly in the month of June. The increase that you see in the other income line is a result of nonrecurring items, primarily gains on the sale of fixed assets and other real estate.

Operating expenses increased $1.4 million or 1.3%. The increase because of the $7.7 million special FDIC assessment was partially offset by the decrease in operating risk loss in the first quarter. In the first quarter, we recognized a $6.2 million charge related to our agreement to repurchase auction rate securities held in customer accounts. As of June 30, virtually all of those securities have been repurchased from customer accounts and are reflected in investment securities. Without those charges in each period, operating expenses would have shown a decline.

Salaries and benefits show an increase of only $495,000, or 0.9%. Full-time salaries were up $740,000, or 1.9%, with about half of that increase due to the extra day in the quarter and the remainder due primarily to the lower personnel turnover we are seeing. As of March 1 this year, salary increases were frozen.

The decrease in occupancy expenses due to seasonal factors and the significant decline in marketing costs is due to the timing of expenditures and cost control efforts. Investment security gains were $77,000 in the second quarter compared to $2.9 million in the first quarter. In the second quarter, realized security gains were $3.5 million, primarily on the sale of debt securities. These gains were offset by $3.4 million in other than temporary impairment charges. Of those charges, $800,000 related to one bank stock and $2.6 million related to pooled trust preferred securities.

Thank you for your attention, and for your continued interest in Fulton Financial Corporation. Now we will be glad to answer any questions.

(Operator Instructions) Frank Schiraldi, Sandler O'Neill.

A couple of questions here. First, on the construction loan portfolio being down 11.8% linked-quarter, is that reflect paydowns, or is any of that reflect loans that were construction, going into either permanent financing or going into the one-to-four family bucket?

Frank, almost all of it relates to paydowns.

Okay. And is that generally in the Maryland area?

It is across the footprint. I think it would be in proportion to the percent of the outstandings.

Okay. And then in terms of tangible common equity, it's at 5.8% right now. Is that something you look at in terms of where you want capital levels to be? Is that a place you are comfortable with? And then as a follow-on, where does paying back TARP weigh in terms of priority?

I think we feel okay about that number relative to peers. I think it is fine. We always -- we want to continue to grow that.

As far as paying back the capital purchase program money, we are continually analyzing that, as I'm sure most banks are, and looking at that whole situation. And we will have a comment when our decision is finalized. But for now, we continue to watch it.

Okay. And then just finally, in terms of the dividend that you pay on the TARP money, is that -- have you been able to offset that through the investment income that you've plowed that capital into?

I guess we've been able to partially offset it, but it's a 5% dividend. It is -- in the quarter, it was over $5 million. And you can't deduct that from a tax standpoint, so the effective yield is like 7.4%. So you can try to offset it, but you can't offset it.

Right. Has there been any leverage put on that capital in order to offset it, or is that not a program that you are --?

I don't think it is leveraged, but when we received the funds, as Phil mentioned, our loans were down. So we put it into the investment portfolio. And it's in agency securities that are relatively short.

Okay. Thank you.

Craig Siegenthaler, Credit Suisse.

Thanks and good morning. First, just on delinquencies, in the March quarter, the residential mortgage and construction delinquency ratios were both in kind of the 7% to 9% range. I'm just wondering how they trended in the second quarter.

I have those numbers for you. Total delinquency trended up from 3% to 3.22%. Construction went from 8.78% to 10.36%. Now, as I mentioned in my prepared comments, Craig, the majority of that increase in percentage was due to the fact that the outstandings in the portfolio decreased.

Went down, yeah.

And the residential mortgage increased from 6.88% to 7.36%.

Got it. Second question I had is it looked like a big driver in terms of net charge-offs has been Maryland, and specifically Maryland construction. I guess we saw how Maryland did this quarter, but do you have any detail around the Maryland construction portfolio in terms of sequential charge-offs or sequential delinquencies? I guess I am more looking for charge-offs as to how they change quarter to quarter.

I think I have it. One second.

And maybe any qualitative commentary around that portfolio, too, in terms of how that is performing.

You know, the total charge-offs in Maryland in quarter one were $10 million. These are gross charge-offs. And in quarter two, $9 million.

And that is construction alone?

No, that's total.

Okay, total.

No, the large percent are construction. I don't have the exact number, but -- from quarter to quarter, but the large percentage in both quarters were construction, Craig.

Because last quarter, Maryland construction was about 7.4. Total Maryland was 10. So, yes, it looks like it improved a little bit. Great. Thank you for taking my questions.

Craig, it was 6.4.

It was -- oh, 6.4 is just Maryland construction?

That's right.

Matthew Clark, KBW.

Good morning, guys. Just a few questions. Maybe the first one, do you guys have any TDRs or restructured loans, troubled debt restructuring loans? And if you do, what were they this quarter, and what were they last?

Very, very minimal. It is not a significant number.

Okay. And as it relates to the loan-to-deposit ratio, obviously, liquidity is much less of an issue today than it was back in the third quarter of '08. You've gotten it down to 101%. Just curious about your reinvestment opportunities these days. We obviously saw securities -- a bunch of securities growth from some outsized deposit growth.

Any desire to curtail some of that promotional deposit growth and cut rates maybe more meaningfully? While it's great to obviously pay down some borrowings like you did this quarter, you still have some excess that could cause the margin to come at risk if you don't have those loan opportunities, for example.

We continue to, one, to be aggressive in obtaining core deposits. And I would say our CD pricing right now, we want to remain competitive. I think in the third and fourth quarters, we probably were more towards the top of the market, and so we probably pulled back a little on the CD side.

How much do you have coming due in the third and fourth quarter, and at what rate? And what is the new rate that you are offering?

You know it's -- for the rest of the year, from July 1 to December 31, it is $3.1 billion. And the rate coming off is 2.61. And we are growing that -- the CDs, and right now, at our lead bank -- and this is very similar for all the other banks -- our lead bank is offering -- for nine months, it is 90 basis points. And for a year, it is 175.

And you know what? I don't think we want to turn off the deposit growth because most of it is core deposits, and they are at very low rates. And even these CD customers, it's relatively good rates. And we are putting it in the investment portfolio and we are buying collateralized mortgage obligations that are very short and they are agency guaranteed.

Okay.

We don't want to turn off deposits. We want that to keep on going.

Yes, I guess I was more concerned about the promotional savings product at the variable rate, should rates rise.

That's a good point.

Lastly, on the construction book, you guys are obviously making some good headway here. I think the balances are down about 26% from the peak, and I think you've incurred about -- cum losses on the order of 3% or so. You've got -- I was just curious what the reserve is that you have set aside on the construction book today. I think it was 266 last quarter.

We might have to get back to you on that one. We are not coming up with that number quickly.

Okay. Well, I had a specific reserve of approximately $32 million at the end of the first quarter.

That is exactly right; it was $32 million. What it is, I can't guess --.

Okay, and then I guess your expectation for loss and reserving in that book, I assume they are both going to grow, given what we are seeing in nonaccruals and delinquencies.

In the construction portfolio?

Yes.

That is hard -- it is hard to look forward and guess. It's easy to tell you what the numbers are in the past, in the quarter, but it's hard to guess. There are so many variables affecting that.

Okay, and just a point of clarification. The delinquency numbers on the construction side of 10.36%, much of that is already is in nonaccrual, no?

That's correct.

And then one more, commercial construction. The size of that book. I think -- I'm sorry -- commercial loans to the construction industry, if we can get an update on that. I think that has been an area of concern, and I think that book was approximately $445 million last quarter. Just curious as to what you are seeing there in terms of balances, in terms of non-accruals and delinquencies.

It was 11% of our commercial loans at the end of the first quarter. We don't have that number yet, but we will put that -- we will put out another updated investor presentation. That number will be in there. And so will the allocated reserves in the construction portfolio. But we don't have that right now.

And I would be surprised if that percentage has changed much.

Okay, but is there -- I guess within that -- the increase in C&I non-accruals, would you -- is there some of that --?

I don't think -- on the C&I side, it is really across a number of different areas. I would not pinpoint that to the construction business.

Okay. Thank you.

Rick Weiss, Janney.

I was wondering if you could just talk a little bit -- I know you said you had been paying down borrowings. It looks like the total average went down during the quarter, but it picked up again at the end of the June quarter. I was wondering are you planning on adding more leverage -- is that what is going on?

At the end of the month usually, Rick, we have big deposit flows at the beginning of the month -- social security, pensions -- seems like a lot of people are paid at the beginning of the month, and our deposit balances go up and usually the Fed funds goes down.

But if you look, I guess, six months to six months, we paid down our Fed funds; they are half of what they were last year. I think they were $1.2 billion last year and they are down to just over $600 million now. And that is just a function of the deposit flows, good deposit flows that are coming in, and the reduction in our loan-to-deposit ratio.

So it's better to look at it on a six-month change rather than linked-quarter, you think?

Yes, and if you look at our total borrowings on a six months to six months, we are down $910 million and 26%.

Okay, so (multiple speakers) that was just a blip, you would think?

It is good to pay it down, but it's like a double-edged sword because deposits are coming in and the Fed funds rate still a quarter. So that is hurting our margin a little bit. But we'd certainly rather have deposits, especially core deposits, as opposed to borrowing.

Okay. And let me ask you -- probably I just didn't catch it -- when you said that you have, I guess, CDs and borrowings that are repricing, did you say -- is that within one year or is that in 2009?

That was from July 1 to December 31. It's in the last six months of the year.

Okay, got it. Thank you very much.

Matt Schultheis, Boenning & Scattergood.

Good morning, gentlemen. Two quick questions. On a linked-quarter basis, [RRF] increased from $350 million to $501 million. What is in there?

The biggest thing in there is we sold some securities at the end of the quarter, and you book the trade based on a trade date. And then the money didn't come in yet. It came in over the quarter. So I think $142 million of that increase had to do with securities sales (technical difficulty).

Okay. Which of course has about an offsetting increase in your short-term borrowings, from a dollar basis, if you look at it. Gains on sale of fixed assets in real estate, that was this quarter, right?

Yes, in this quarter.

What are the dollar figures on that, and what type of real estate (inaudible) looking at?

We are getting those, Matt.

All right.

It was -- yeah, the gain on ORE was $151,000. That was last quarter. And it went up to $882,000 this quarter.

Okay.

And then on the sale of -- it would be -- on other fixed assets, it went from $152,000 to $249,000.

Okay, so it is not branch sales or anything like that?

No, it is residential properties.

Okay. Thanks for your time.

(Operator Instructions) Collyn Gilbert, Stifel Nicolaus.

Thanks. Good morning, guys. Just a couple questions. First, on the leasing portfolio, it looks like the credit quality is kind of deteriorating pretty rapidly in the portfolio, but yet you are still growing it. Can you just talk a little bit about the strategy there and sort of what you see also on the credit side going forward?

Yes, we have -- first off, the portfolio is not that large. So when you have one or two situations, it can impact those numbers. But we've had a couple of leases to healthcare-related companies that we are working through the credits.

Okay, so you still intend to grow the business? You are comfortable with the type of credits that you are putting in there?

Yes.

Okay. And then just quickly, do you guys have any SNC credits? I can't remember -- Shared National Credits?

Yes, we have, I believe, 12. And they are all customers that are headquartered in our footprint and that we do some other business with. I don't think they are typical SNCs, but they meet the definition of a SNC, which is three or more banks. I'm not sure what the volume amount is, but that is what is in that portfolio.

Okay. Are you a lead on those relationships? Are you the lead bank on those participations?

We are the lead bank on, I would say, the majority, not all.

Okay, and what is -- you said 12 credits, but do you have the total outstanding balance of those?

I can get that for you.

But I presume that the portfolio is performing fine and you are not seeing issues yet?

That is correct.

Okay. And then one other thing, on the home-equity growth, I know you basket that in with residential mortgage. But what has been the growth like on the home-equity lines on a linked-quarter basis? Are you seeing line usage increase, or any sense there on that segment?

On a linked-quarter, home equity is actually down 2% or $30 million.

Okay, and any dramatic change in line usage?

No, it has been fairly flat.

Okay. And then just a final question on loan pricing. What are you seeing out there in the market in terms of some of your loan pricing and kind of the spread improvement that you are seeing on new business that is coming in versus what is rolling off? And I know it is going to vary among product, but I guess speaking mostly just on the commercial side.

I think just generally speaking, loan pricing has improved, and margins are much better on the loan side, on both floating and fixed rate. On lines of credits, pricing has increased. And there is just not a lot of new demand.

Okay.

Our opportunities are in capturing market share. We are getting some of those, but we are being very selective.

Okay. I think that was all I had. Thanks.

Andy Stapp, B. Riley & Co.

Good morning. I think all my questions have been asked except for one, and that is do you have the 30- to 89-day delinquencies at quarter-end?

We do.

30-day delinquencies were 72 basis points and 60-day delinquencies were 30 basis points.

All right. Thank you.

Gentlemen, we have no further questions at this time. Mr. Smith, I will turn the call back to you for any additional or closing remarks.

Thank you and thank you all for joining us today. We hope you will be able to be with us again third quarter for our conference call, which is scheduled for October 21 at 10 A.M. We'll talk to you then. Thank you again.

Thank you. And that does conclude today's conference call. Thank you for your participation.